tag:blogger.com,1999:blog-8152901575140311047.post6317740017042211865..comments2024-03-29T11:51:17.425-04:00Comments on Musings on Markets: Thoughts on intrinsic valueAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger30125tag:blogger.com,1999:blog-8152901575140311047.post-79827875637481915272014-07-21T13:03:47.067-04:002014-07-21T13:03:47.067-04:00Intrinsic value is not based on market pricing - t...Intrinsic value is not based on market pricing - that's speculative value.<br /><br />Intrinsic value is the cost of replacing an asset, including all substitutes.<br /><br />The intrinsic value of gold is the cost of a viable substitute in commercial applications, as well as it's cost of production, assuming that those items are not speculatively priced themselves.<br /><br />Gold currently trades on out-of-date intrinsics, and it's value is entirely bubbled. As with all bubbles, you can't tell if, when, or at what level that bubble will burst.<br /><br />Gold's is generated resource. It's intrinsic value is capped by it's cost of production. Any amount above that cost is non-sustainable in the long term.<br /><br />The lowest value of gold is the cost of the nearest substitute for it's commercial and industrial applications.<br /><br />However, gold trades on emotion and historical indicators that are no longer relevant, such as the value of paper money.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-68975644901193752722013-10-24T03:28:54.762-04:002013-10-24T03:28:54.762-04:00Hi Guys, I found a Website to perform Discounted C...Hi Guys, I found a Website to perform Discounted Cash Flow Model calculations, no need to do those calculations on the Excel file anymore, check it out:<br /><br />http://turnkeyanalyst.com/2013/09/19/cloud-based-discounted-cash-flow-analysis-tool/ <br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-30089158551982015832013-06-23T03:52:19.636-04:002013-06-23T03:52:19.636-04:00Now I know that gold doesn't have an intrinsic...Now I know that gold doesn't have an intrinsic value but rather it has relative value. Thanks for pointing it out.Sunshine Coast Bookkeepinghttp://bookkeeperssunshinecoast.com.au/noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-10950733159511400832013-02-11T05:02:20.207-05:002013-02-11T05:02:20.207-05:00cover your interest expenses/foregone interest inc...cover your interest expenses/foregone interest income, the future earnings will comfortably. It is therefore entirely possible for an accretive deal to be value destroying and a dilutive deal to be value increasing. <a href="http://www.newswire.net/newsroom/local/new-york/70326-matawan-tax-preparation-service.html" rel="nofollow">Matawan Tax Preparation</a><br />Anonymoushttps://www.blogger.com/profile/09988824537426226265noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-75619518267784755582012-02-14T02:40:18.895-05:002012-02-14T02:40:18.895-05:00Hi
I read this post two times.
I like it so much...Hi<br /><br />I read this post two times.<br /><br />I like it so much, please try to keep posting.<br /><br />Let me introduce other material that may be good for our community.<br /><br />Source: <a href="http://interviewquestionsandanswers.biz/call-center-supervisor-interview-questions/" rel="nofollow">Call center supervisor interview questions</a><br /><br />Best regards<br />HenryAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-56422231761119203122011-11-23T05:44:34.817-05:002011-11-23T05:44:34.817-05:00other view is
Paper money has replaced gold as a ...other view is <br />Paper money has replaced gold as a currency over the period of time. If we have to find intrinsic value of gold we can convert it to money at current market rate and consider current interest rate in market which will provide cash flow. Discounting it to present we may get intrinsic value of gold.<br />I strongly consider that something is missing in the logic any inputs on thisRaghavhttps://www.blogger.com/profile/17501498118707515494noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-61103701621697670132011-11-23T04:22:36.029-05:002011-11-23T04:22:36.029-05:00Gold has proven to be most liquid and reliable ass...Gold has proven to be most liquid and reliable asset for centuries. Had it been abundant availability of gold then it could have proved to be not so useful metal. If we see actual use of gold as a metal it is not much. I was reading article about gold where author said if interest rate in a country is lower than inflation people prefer to buy gold as a better investment. Gold can’t provide stream of cash one can gain from it only when the price of the gold increases. It is like your home which can’t be an asset and does not provide you cash flow (It certainly avoids your cash out flow). One has to sell gold to realize gain and that is the end of the story. Assets like a machine can give you cash flow over the period of time and also has value of its own. When we say cash flow, machine is being useful for someone and someone is ready to pay for that. In case of gold it is of no use. Even an employee will have an intrinsic value as it generates cash flow for the company and one can value a person in terms of intrinsic value.<br />If we look at it in other way say in 1960 with the price of 1gm of gold one was able to buy say 1000 eggs even today proportion might be similar with some adjustments( I have not calculated it). In my opinion gold will have approximately a somewhat fix ability to buy any bench mark commodity. As there will be inflation value of the gold will be adjusted according to it.Raghavhttps://www.blogger.com/profile/17501498118707515494noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-7112244475800968962011-07-06T18:01:57.798-04:002011-07-06T18:01:57.798-04:00Hi,
@Eugene. Quantitative easing is in essence a ...Hi,<br /><br />@Eugene. Quantitative easing is in essence a waste of tax payer money. Indiscriminate spending, as advocated by Keynesian Economics, is flawed. In fact, it has been proven to be flawed many years ago -- yet politicians advocate it because it is so simple and it makes them look good.<br /><br />Quantitative Easing does not work. Suppose the US government gave every man, woman and child in the country a $100 bill. The act would be meaningless because goods and services would simply charge more for the same amount, and people would spend proportionally more for the same amount. So there really is no positive net effect.<br /><br />What the government needs to do is (1) Stop wasting money on useless wars. (2) Invest in infrastructure that will help foster innovation, increase productivity and reduce expenses. <br />(3) Maybe pay off some of that debt, maybe. Austerity programs are not in vogue now since what happened in Europe but doing so may increase confidence in our monetary system.Unknownhttps://www.blogger.com/profile/03901140297093486909noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-51729824724914023502011-07-06T17:51:45.590-04:002011-07-06T17:51:45.590-04:00Hi,
I believe that gold has an intrinsic value.
...Hi,<br /><br />I believe that gold has an intrinsic value. <br /><br />Let us change the question a bit. Suppose I ask, what is the intrinsic value of a $100 bill? You cannot say that it has no intrinsic value because it does not generate cash flow. <br /><br />The value of the $100 bill is set based on how many $100 bills there are in circulation. As the supply of $100 bills increases, its market value decreases even if its nominal value remains the same. This is basically how inflation works.<br /><br />The same concept applies to a bar of gold. Its value depends mostly on how much of it is circulating and available to the market.Unknownhttps://www.blogger.com/profile/03901140297093486909noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-34596047186777134602011-06-14T04:08:31.750-04:002011-06-14T04:08:31.750-04:00To add to Saurabh's comments, I personally bel...To add to Saurabh's comments, I personally believe QE3, or some variant of it, has to happen as the US is still stuck in a balance sheet recession. Consumers are not spending enough and private sector is not investing enough but I hope this change by next year...<br /><br />Would appreciate Prof. Damodaran's take on this as well!Eugenehttps://www.blogger.com/profile/13065226866205023220noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-35898205208993133382011-06-13T18:43:00.020-04:002011-06-13T18:43:00.020-04:00Professor I might sound irrelevant to this post, b...Professor I might sound irrelevant to this post, but I request you do a write up on Quantitative Easing 3 - "Does America need it?".I was reading Krugman and he sounded confident that resorting to any more cuts and not injecting money will spell doom for the US economy.This topic is all the more relevant given the fact that Fitch is planning to downgrade US if US fails to raise its debt limit before August.Looking forward to your response :)<br /><br />Regards,<br />SaurabhSaurabhhttps://www.blogger.com/profile/16635724172541652681noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-8048653763361083162011-06-10T18:18:43.769-04:002011-06-10T18:18:43.769-04:00Dave,
Your point about gold's functionality is...Dave,<br />Your point about gold's functionality is a good one, but you are also right. If it were priced based on that, its value would be tinry, relative to its fair value.<br />Essentialassociate,<br />You may be right about it being in bubble territory, but for better or worse, it remains a powerful hedge against a complete failure of the monetary authorities...Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-22378425330919440952011-06-10T00:55:32.244-04:002011-06-10T00:55:32.244-04:00Loved reading the post. I have a point to make. Th...Loved reading the post. I have a point to make. That is it worth investing in gold right now as the said asset does not generate any cash flow (only capital appreciation) and seems to be in a bubblish territory?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-34745152299498126422011-06-09T23:08:12.924-04:002011-06-09T23:08:12.924-04:00Just a thought. If one views the gold as a functio...Just a thought. If one views the gold as a functional metal for conductors and the like, it should have a intrinsic value of whatever cash flows can be created with the it. Granted that it is probably miniscule, and that's not what you're paying $1,543 an ounce for.Davehttps://www.blogger.com/profile/03128620600414782869noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-88373169166532337662011-06-09T12:38:36.064-04:002011-06-09T12:38:36.064-04:00Sure no market is absolutely fair. But we have to ...Sure no market is absolutely fair. But we have to live with it. Probably take advantage of it. :)Diffusionhttps://www.blogger.com/profile/06397108198456595726noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-86701072700093229282011-06-09T12:28:34.930-04:002011-06-09T12:28:34.930-04:00Ah, I see what you are getting at. Rents are deter...Ah, I see what you are getting at. Rents are determined by demand and supply in a market. Fair enough. In many ways, one of the problems with financial asset markets is that they are markets for financial assets overlaid on markets for real products and services. In intrinsic value, you are estimating the value of financial assets, given the real product market below. You could conceivably carry intrinsic value one step further and ask whether the rental market is intrinsically fair...Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-90806448986858962222011-06-09T11:58:03.439-04:002011-06-09T11:58:03.439-04:00Maybe I didn't make myself clear. Intrinsic va...Maybe I didn't make myself clear. Intrinsic value of a house is determined by its rent. But who determine the rent, a market. The same thing for a company. Its intrinsic value is determined by how much income it makes. If a company sells products, then its income is determined by the price of its products. Again it is a market that set the price of the product. Yes the market is not a financial market. But it appears that market is the only way to discovery and realize value in human society. <br /><br />Anyway I was trying to be humorous, not trying to make an argument. It's a pity it didn't go through...Diffusionhttps://www.blogger.com/profile/06397108198456595726noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-40448325491309601642011-06-09T10:51:35.563-04:002011-06-09T10:51:35.563-04:00The intrinsic value is not being set by the market...The intrinsic value is not being set by the market. It is being estimated by it. If you believe that markets are efficient, then the two will converge. If you do not, all bets are off. (Think Linkedin and Groupon...)Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-47009697107230284352011-06-09T10:42:42.604-04:002011-06-09T10:42:42.604-04:00Very sharp, indeed!
The author tried to distingui...Very sharp, indeed!<br /><br />The author tried to distinguish intrinsic value from the market process of discovering it. The logic is sound and the argument is striking.<br /><br />But isn't it the intrinsic value itself being set by the market? Such as the rend of a house, the sales / income of a company, etc? :DDiffusionhttps://www.blogger.com/profile/06397108198456595726noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-40003550723210658492011-06-09T08:14:40.540-04:002011-06-09T08:14:40.540-04:00That is a different issue and I do have a post on ...That is a different issue and I do have a post on the question: Here is the link:<br />http://aswathdamodaran.blogspot.com/2010/07/what-if-nothing-is-risk-free.htmlAswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-79205793809057949522011-06-09T07:36:48.796-04:002011-06-09T07:36:48.796-04:00Prof.
Great writing, very informative and thanks ...Prof. <br />Great writing, very informative and thanks again; <br />I do not wish to digress, from the topic, however how long are TBills going to be risk free? At some point in time the Chinese, Japanese, and other investors are going to wake up and say "Hey, I need to be compensated more for the risks I am taking in financing Uncle Sam"; this may come from the perception that the US may perhaps inflate away their deficit, by devaluing the dollar, in which case the instruments become worthless - thus increasing the risk perception or shall we call it the risk-free rate? <br />Your thoughts please...<br />KrishnanKrishnanhttps://www.blogger.com/profile/01096917726465877552noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-69113477068967623412011-06-09T06:42:43.784-04:002011-06-09T06:42:43.784-04:00All good points.
To bankdude, you may be right ab...All good points. <br />To bankdude, you may be right about gold being worthless (in terms of funcitonality) but think of it not as a cash commodity but as an alternative to cash.<br />To Richard Tucker, I am not sure I belong in either group but I have a feeling that there is a core of truth to both. So, I invest the bulk of my portfolio in financial assets but I have bought hedges against surges in inflation (from TIPs, to commodity, to gold funds). <br />Chandarima, it is true that you get cash when you sell gold (but that it the only cash flow) and it comes from some one else's perception of what gold is worth. If you think the price of gold is too low, you cannot just hold on to the gold and get an alternative stream of cash flows (as you can from a stock).<br /> Terry, if you are right about interest rates signaling negative real growth, it is going to be catastrophic for most Western Economies since they have budget needs that don't allow for this. Gold may still be your best option. <br />Abodeely, it is true that riskfree rates vary across time but that does not make them risky. As long as you have the option to lock in a 3% return for the next 30 years today, as you do in nominal terms with a treasury bond or with real terms with a TIPs, you have a riskfree investment.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-52612856437317188692011-06-09T01:04:00.468-04:002011-06-09T01:04:00.468-04:00Aswath- Thanks for your work, I appreciate your co...Aswath- Thanks for your work, I appreciate your contribution. <br /><br />Might the "risk free rate" be something that also lacks certitude and permanence in the real world and require its own subjective adjustments? In other words, does what is considered to be risk-free change with time and the opinions of investors, and the actions of men (politicians, central bankers, and the like)? If so, does that limit its effectiveness? And if one were to make adjustments to the risk free rate (like using BAA yields), doesn't that adjustment always come relative to the risk-free rate? For example, while the cash flows for Coca-Cola might be no more or less certain in 1985 as they were in 1995, 2005 or are today, a valuation expert at each moment in time surely would've discounted them differently. <br /><br />Kumar- I think that there are measures that can determine whether gold is relatively overpriced or under-priced. I would look at gold relative to the monetary base, gold relative to paper assets such as stock indexes (as well as P/E multiples), gold relative to other commodities like copper, and gold relative to interest rates or long-term inflation expectations, among others. While these are are all relative measures, they give insight into its standing versus alternatives.<br /><br />I intend to write on the topic soon at my blog, www.valuerestorationproject.comJJ Abodeelyhttps://www.blogger.com/profile/08870505415754876858noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-67725087789631064262011-06-08T23:41:28.112-04:002011-06-08T23:41:28.112-04:00If over the long run the real interest rate equals...If over the long run the real interest rate equals the real growth rate then the current low yields on treasuries could be telling you something about expected future growth rather than something about inflation.Terryhttps://www.blogger.com/profile/01216569036162916738noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-4890713095471915272011-06-08T18:53:59.741-04:002011-06-08T18:53:59.741-04:00Loved reading this, made me think.
I have a very f...Loved reading this, made me think.<br />I have a very fundamental question- When you sell gold at a particular price, then aren't those cash flows from sale? So cash flows from sale of the good is different from cash flows from sale of produce of a good. Then what is the intrinsic value of consumption goods like food?Chandrimahttps://www.blogger.com/profile/13661642025213927559noreply@blogger.com